Mr. Ron Little reports
OREZONE ANNOUNCES POSITIVE FEASIBILITY STUDY FOR BOMBORE
Orezone Gold Corp. has released the highlights of the independent feasibility study for its wholly owned Bombore gold project in Burkina Faso. The study envisions a shallow open-pit mining operation with a processing circuit that combines heap leaching and carbon-in-leach without any grinding to process the soft and mostly free digging oxidized ores. The 11-year mine plan, based on a mineral reserve using a $1,100 (U.S.) gold price, is designed to deliver higher-grade ore in the early years (0.88 gram per tonne over the first eight years of production at a strip ratio of 1:1). Lower-grade stockpiles will be processed in the final three years. The financial model with revenues based on a $1,250 (U.S.) gold price, yields a robust 24.4-per-cent after-tax internal rate of return to the company (based on 90-per-cent ownership, 10 per cent government) with a net present value of $196-million (U.S.) at a 5-per-cent discount rate. Project payback is estimated at 2.7 years with all-in sustaining costs averaging $678 per ounce. Initial capital is estimated at $250.0-million, including contingencies, all working capital and a $10.5-million credit for gold revenues generated during the preproduction period. Capital costs include the mining fleet, a much larger water storage reservoir and higher resettlement costs than envisioned in the March, 2014, preliminary economic assessment. Sustaining capital is estimated at $75.2-million, taking into account the additional three years of mine life and higher resettlement costs than estimated in the PEA. Total reclamation and closure costs are estimated at $22.5-million, including $8.7-million of heap rinsing costs expensed in year 12.
"The results of the study are compelling and the project benefits from size, location, low reagent consumption, rapid leaching kinetics and low all-in operating costs," said Ron Little, chief executive officer of Orezone. "Bombore is one of the largest and most advanced undeveloped gold deposits in the region that lends itself to phased development. The initial 11-year phase requires less capital and has lower operating costs to process the shallow and softer oxidized ores. A second phase, at slightly higher gold prices (greater than $1,400 (U.S.)) could expand the standard CIL circuit with the addition of grinding to process the well-defined sulphide resource (73 million tonnes at 1.1 grams per tonne for 2.6 million ounces)."
The study was completed by Kappes, Cassiday and Associates of Reno (processing and study manager), Golder Associates Inc. of Reno and Montreal (geotechnical), RPA Inc. of Toronto (reserves and mining), and WSP Canada Inc. of Montreal, in conjunction with Socrege and BEGE of Burkina Faso (social and environmental).
Summary of financials
The base case assumptions include mineral reserves using an average gold price of $1,100 per ounce and revenues based on $1,250 per ounce along with current prices for fuel, reagents and labour. Capital is based on quotes received from potential equipment and service providers between the third quarter of 2014 to present.
BASE CASE HIGHLIGHTS
Mine plan contained gold at $1,100 Au (ounces) 1,465,000
Average gold grade (g/t) LOM 0.76/years (1-8)
0.88
Processing throughput (Mt/yr) 5.5
Mine life (years) 10.7
Average annual gold production (ounces) LOM 116,000/years (1-8)
135,000
Gold production (ounces recovered) 1,275,000
Waste to ore strip ratio (incl. prestrip, water OCR) 1.07:1.0
Gross revenue ($M) using $1,250 Au 1,589
Direct cash cost ($/oz) 554
Operating cost ($/oz) 603
Initial capital ($M) (incl. $10.5M capital
credit) 250.0
Sustaining capital ($M) 75.2
Closure costs ($M) (incl. $8.7M of expensed
costs) 22.5
Attributable to Orezone (1)
NPV after tax (0%) ($M) 323.9
NPV after tax (5%) ($M) 196.1
IRR after tax 24.4%
Attributed to government (2)
NPV (0%) with taxes ($M) 214.8
NPV (5%) with taxes ($M) 152.7
(1) Represents Orezone's Burkina Faso subsidiary cash flows net of
royalties and local taxes.
(2) The government of Burkina Faso benefits from its 10-per-cent free
carried interest, royalties (4-per-cent NSR), corporate tax (18.3 per cent)
and withholding taxes.
Exchange rates: U.S. dollars to CFA francs: 550; euros to U.S. dollars:
$1.19; euros to CFA francs: 655.957.
Fuel price delivered to site (U.S. dollars per litre): diesel $1.20; HFO
77 cents.
The mineral resource and mineral reserve
The mineral reserve estimate prepared by RPA, is based on the 2013 mineral resource estimate prepared by SRK Consulting (Canada) Inc., which includes 139.9 million tonnes of measured and indicated resources grading 1.01 grams per tonne for 4.6 million ounces plus 18.4 million tonnes inferred resources grading 1.22 grams per tonne for 700,000 ounces. The study minable reserve is limited to only the measured and indicated near-surface saprolite (oxide) and transitional (semi-oxidized) resources to an average depth of 45 metres.
The mineral resource estimate consists of three separate block models:
- The North model, which consists of the KT, Maga, CFU, OCR and P8P9
zones;
- The South model, which consists of the P11, Siga E and Siga W zones;
- The Southeast model, which is to the south and southeast of the South
model and consists of the P16 and P17 zones.
MINERAL RESOURCE ESTIMATE -- SRK CONSULTING (CANADA) INC., APRIL 26, 2013
Measured mineral Indicated mineral Inferred mineral
resource resource resource
Cut- Cont- Cont- Cont-
off Ton- ained Ton- ained Ton- ained
gold nage Grade gold nage Grade gold nage Grade gold
Category g/t Mt g/t koz Mt g/t koz Mt g/t koz
North
Laterite/oxide 0.45 13.57 0.95 417 14.20 0.82 375 2.04 0.88 57
Transitional 0.45 9.22 0.93 275 5.84 0.92 173 0.79 1.00 25
Fresh 0.50 22.04 1.00 711 11.98 1.29 497 4.42 1.63 232
----- ---- ----- ----- ---- ----- ---- ---- ---
Subtotal 44.83 0.97 1,402 32.02 1.02 1,046 7.25 1.35 315
South
Laterite/oxide 0.45 8.11 0.94 246 4.53 0.86 125 1.66 0.89 48
Transitional 0.45 7.49 0.89 214 2.97 0.96 92 1.35 0.96 41
Fresh 0.50 20.58 1.02 674 15.26 1.19 584 5.46 1.26 222
----- ---- ----- ----- ---- ----- ---- ---- ---
Subtotal 36.17 0.98 1,134 22.76 1.10 801 8.46 1.14 311
Southeast
Laterite/oxide 0.45 0.24 1.33 10 0.37 1.05 12 0.30 0.97 9
Transitional 0.45 0.25 1.53 12 0.34 0.97 11 0.24 0.97 7
Fresh 0.50 1.53 1.44 71 1.32 1.43 61 2.18 1.15 81
----- ---- ----- ----- ---- ----- ---- ---- ---
Subtotal 2.03 1.44 94 2.02 1.28 83 2.71 1.12 97
Combined
Laterite/oxide 0.45 21.92 0.95 673 19.10 0.84 513 4.00 0.89 115
Transitional 0.45 16.96 0.92 501 9.14 0.94 275 2.37 0.97 74
----- ---- ----- ----- ---- ----- ---- ---- ---
Lat/ox/tr total 0.45 38.88 0.94 1,174 28.24 0.87 789 6.37 0.92 189
Fresh 0.50 44.14 1.03 1,456 28.55 1.24 1,142 12.05 1.38 534
----- ---- ----- ----- ---- ----- ---- ---- ---
Total all
material 83.03 0.99 2,630 56.79 1.06 1,930 18.42 1.22 723
----- ---- -----
Total M+I all
material 139.82 1.01 4,560
------ ---- -----
Total M+I
oxidized 67.12 0.91 1,963
(i) Mineral resources are not mineral reserves and do not have a
demonstrated economic viability. All figures have been rounded to reflect
the relative accuracy of the estimates. The gold price of $1,400 (U.S.) and
the cut-off grades from the previous resource estimation (2012) have been
retained for comparison purposes. Reported within conceptual open-pit shells
optimized considering a carbon in leach CIL process option.
For the mineral reserve estimate, RPA developed reserve block models, for each of the three resource block models, by applying modifying factors for conversion of mineral resources to mineral reserves. Those factors included among others, weathering profiles, operating costs, metallurgical recoveries, mining dilution and extraction, and pit slopes.
MINERAL RESERVE ESTIMATE -- RPA, MARCH 20, 2015
Proven Probable Proven and probable
Tonnes Grade Ounces Tonnes Grade Ounces Tonnes Grade Ounces
Category Mt g/t koz Mt g/t koz Mt g/t koz
North 25.32 0.77 627 15.11 0.69 333 40.43 0.74 960
South 12.96 0.81 339 6.15 0.92 173 19.13 0.80 491
Southeast 0.18 1.17 7 0.18 1.18 7 0.36 1.18 14
----- ---- --- ----- ---- --- ----- ---- -----
Total 38.48 0.79 973 21.44 0.71 493 59.92 0.76 1,465
CIM definitions were followed for mineral reserves. Mineral reserves are
estimated using a variable gold cut-off grade based on ore type and
location; estimated cut-off grades range from 0.30 gram per tonne to 0.45 gram per tonne gold.
Mineral reserves are estimated using an average long-term gold price of
$1,100 (U.S.) per ounce. A minimum mining width of five metres was used. Bulk
density is estimated in the mineral resource model by block; the average
density of ore is 1.8 tonnes per cubic metre. Numbers may not add due to rounding. Mineral
reserves are included in the mineral resource.
Estimated annual gold production
The study assumes during years 1 through 8 an average annual mining rate of 13.9 million tonnes, including 5.5 million tonnes of ore. The ore is composed almost equally of plus-or-minus-212-micron material and is processed via the heap leach pad (plus-212-micron) and CIL (minus-212-micron) circuits. Some gold is recovered during the preproduction period as a result of mining and processing the ore contained within the water storage facility (OCR). During years 9 to 11 ore is only processed from the lower-grade stockpiles.
AVERAGE PRODUCTION
Year -1 1 2 3 4 5 6 7 8 9 10 11 Total
Gold (Koz) 11.1 186 168 146 135 135 112 115 89 65 65 48 1,275
Grade
(g/t) 0.45 1.21 1.09 0.95 0.88 0.87 0.73 0.75 0.58 0.42 0.42 0.42 0.76
SUMMARY OF OPERATING COSTS (EXCLUDING PREPRODUCTION PERIOD)
Total costs Average cost Average cost
Category $M $/t processed $/oz
Mining 299 5.06 234
Processing 293 4.97 230
General services 111 1.88 87
Transport and refining 3.2 0.05 2.5
Cash cost 706 11.96 554
Royalties 63 1.07 50
----- ------ ----
Total cash cost 770 13.03 603
Initial project capital cost estimates
Initial capital costs are based on quotes of equipment and services from potential providers.
INITIAL PROJECT CAPITAL COST ESTIMATES
(in millions of U.S. dollars)
Project capital area
Infrastructure $ 7.5
Power plant 7.8
Mining and support equipment 24.8
Process plant (incl. water system) 98.7
Indirects (i) 14.1
Resettlement 10.3
EPCM, commissioning and owner's cost (ii) 29.3
Preproduction (i) (w/OCR and preproduction gold credit(iii)) 30.5
Working capital 10.2
Contingencies 16.7
------
Total initial capital costs $250.0
(i) Including contingency
(ii) Excluding VAT
(iii) Gold credit is for gold produced during the preproduction period of
commissioning equipment and amounts to approximately 8,400 ounces.
SUSTAINING CAPITAL AND CLOSURE COST ESTIMATES
(in millions of U.S. dollars)
Project sustaining and closure capital area
Mining and G&A $ 23.1
Plant and nested tails 36.1
Resettlement 9.9
Contingencies 6.1
------
Total sustaining capital costs 75.2
Reclamation and closure(i) 13.8
------
Total sustaining and closure capital $ 89.0
(i) Total closure cost estimated at $22.5-million; $8.7-million of expensed
costs for heap rinsing not included in closure capital as gold production is
associated with the process.
Sustaining capital costs were estimated on the basis of quotes on equipment from potential providers. Taxes and freight are included along with the individual items. The closure and reclamation plan includes work to be conducted from the closure of the mine at the end of operating activities, as well as progressive rehabilitation work during the life of the mine. The goal is to return the site to a satisfactory state as quickly as possible in terms of reducing the risks for health and safety, controlling erosion, and developing a profile compatible with the future uses of the site.
Total LOM reclamation and closure costs are estimated to be $22.5-million including $8.7-million in expensed operating costs for heap rinsing in year 12. The additional $13.8-million in capital and $8.7-million in expenses are included in the LOM AISC estimate of $678 per ounce. An estimated equipment salvage value of $9.6-million has been included as a credit.
Project sensitivities
The project is sensitive to gold price.
PROJECT SENSITIVITIES
Base
case
Gold price (per oz) $1,000 $1,100 $1,250 $1,400 $1,500
To Orezone
NPV (0%) after tax ($M) 121.2 198.5 323.9 437.1 519.8
NPV (5%) after tax ($M) 49.1 105.1 196.1 278.2 338.1
IRR after tax 10.4% 16.1% 24.4% 31.3% 36.2%
To gov't of Burkina Faso (incl. taxes,
dividends and royalties)
NPV (0%) after tax ($M) 99.1 149.1 214.8 292.6 337.3
NPV (5%) after tax ($M) 69.8 105.7 152.7 208.5 240.6
The project is also sensitive to operating costs, in particular fuel (diesel and HFO) which accounts for approximately 25 per cent of expenses. Diesel pricing is set by the government of Burkina Faso. The study uses the conservative delivered to site fuel prices of $1.20 per litre for diesel and 77 cents per litre for HFO. Although diesel prices are lower than those used in the 2014 PEA, they are not as low as the current price in Burkina Faso or the free market price. The project economics and other mining operations in the country would benefit if the government were to change their policy to allow free market pricing and direct supply.
Mine plan and pit optimization studies
The company has worked with RPA to develop a mine plan and production schedule (based on the April, 2013, resource model). Scheduling has been optimized for project returns by processing the higher-grade ore in the early years and stockpiling the lower grade ore for processing after mining is complete in year 8. Initial process grade for years 1 through 3 averages 1.08 grams per tonne, with the years 1 through 8 averaging 0.88 gram per tonne. A fleet of 32-tonne haul trucks, such as Volvo or Scania rear-dump units, will be used to provide increased versatility, as the mine plan consists of a large number of shallow pits of varying tonnage.
Total ore processed, including the lower-grade stockpiles, will be 59.9 million tonnes of oxide and semi-oxidized ore grading an average of 0.76 gram per tonne. The life of mine strip ratio is approximately one tonne of waste per tonne of ore.
Metallurgical test results
KCA has completed all of the metallurgical testing associated with the Bombore project study and have reviewed the historical data. Results indicate that the overall recovery for the combined heap leach and CIL processing circuit is expected to be 87 per cent. The circuit separates the fine ore (minus 212 microns) from the coarse ore in a cyanide solution via a rotary scrubber, screen and classifiers. The slurried fine ore (49 per cent of the total) is pumped to a CIL circuit for gold recovery without any grinding. The CIL tails are sent to a lined tailings facility that utilizes the heap leach as part of the containment system in order to reduce the footprint and liner costs. The tails facility is designed to be zero discharge. The coarse (plus 0.212 millimetre) fraction is conveyed to a standard heap leach pad, where it is leached with a cyanide solution. With the majority of the fines removed from the coarser heap leach ore, there is no requirement for cement agglomeration or interlift liners for a stacking height of up to 60 metres. The pregnant liquor from the heap leach is sent to the CIL circuit for gold recovery. Gold is recovered in a standard carbon desorption plant, finishing with electrowinning and smelting to produce gold dore bars.
Maximum power requirement will be 7.2 kilowatt-hours per tonne of ore.
REAGENT CONSUMPTION
Reagent Consumption
Cyanide 0.4 kg/t heap; 0.165 kg/t CIL
Lime 1.24 kg/t
Caustic 25.9 t/yr
Carbon 52 t/yr
Development timetable
Estimated time to construct the Bombore operation (preproduction) is 21 months, including time to excavate the off-channel reservoir to be used for project water storage, and time to commission the process plant equipment.
Water for the operation will be collected by gravity feed into the OCR from about 10 per cent of the annual rainy season runoff from the Nobsin River drainage basin. The OCR usable volume design capacity is three million cubic metres, and significantly larger than those designs presented in the 2014 PEA (900,000 cubic metres). Annual water consumption for the project is calculated to be, on average, between 2.6 million and 2.9 million cubic metres per year and considers recycle of tailings solution. The increase in annual water consumption as compared to the 2014 PEA is due to the change in the process from 100 per cent heap leach to a combined heap leach/CIL process.
Environmental studies and social responsibility
The environmental baseline studies for the Bombore project began in 2011 and were completed at the end of 2014. Local consultants have conducted archeological studies and a comprehensive range of environmental and social impact studies. Their work is supported by WSP, which was retained by Orezone early in 2014 to support and audit the Bombore ESIA study and resettlement action plan.
Over the past five years the company has recognized and accepted its social responsibility by actively supporting local communities by sponsoring over 50 initiatives which included improvements and additions to local schools, clinics, water wells and supply inventories. Orezone has on staff technically qualified employees, sociologists and managers experienced with mining and resettlement projects in Burkina Faso. With the help of the company's employees, consultants and community leaders the company is currently developing plans to pursue these community projects in the coming weeks, months and years.
The company continues to hold formal and informal information meetings with the community leaders to update them regularly on the status of the Bombore study. In order to ensure safe operations, the project will require the relocation of over 500 local households (approximately 3,700 residents) from several communities and two artisanal mining sites over the initial five years of construction and operation. The program for this relocation has been the object of joint discussions involving the communities affected, their representatives, the company and its local consultants Socrege. A detailed analysis based on these discussions has led to a substantial increase in relocation and resettlement cost as compared with the 2014 PEA. The main areas where estimated costs increased were building replacement, artisanal miner compensation, infrastructure crop and tree compensation and livelihood compensation. Preproduction costs for the resettlement program are now estimated at $10.3-million, with life of mine costs estimated at $20.2-million.
Full details of the feasibility study in the form of a National Instrument 43-101 technical report will be filed on SEDAR within the next 45 days. The company is also in the process of updating the 2013 mineral resource estimate with the inclusion of an additional 50,000 metres of drilling. The update will be completed by the third quarter of 2015 and if warranted, an update to the mineral reserve and mine plan will be completed prior to any production decision.
Carl Defilippi of Kappes, Cassiday & Associates, Glen Ehasoo of RPA, Todd Minard of Golder Associates, Craig Wood of WSP, Glen Cole of SRK Consulting (Canada), and Tim Miller, chief operating officer, Pascal Marquis, senior vice-president, and Ron Little, chief executive officer, of Orezone, are qualified persons under National Instrument 43-101 and have reviewed the information in this release.
We seek Safe Harbor.
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